Citi names Pandit CEO; Bischoff is chairman

GregMorcroft

AlistairBarr

NEW YORK (MarketWatch) -- Former hedge-fund manager Vikram Pandit was named chief executive of Citigroup Inc. on Tuesday, taking control of a financial-services giant that's suffering on multiple fronts with global credit in crisis and looming risks of U.S. recession.

Citigroup also named Win Bischoff chairman, replacing Robert Rubin, who will return to his previous duties as a Citi director and chairman of the executive committee of the board.

Pandit replaces Bischoff, who has filled the top post on an interim basis since former chief Charles Prince was forced out after Citi posted huge write-downs on mortgage-related securities.

Citi shares dropped 4.4% to close at $33.23 on Tuesday. The bank announced Pandit's appointment as the Federal Reserve cut interest rates 25 basis points to 4.25%. The Fed decision was criticized as too cautious in the face of rising recession risks, and financial-services stocks fell across the board.

Last month, shares of Citigroup
C, -0.05%
dropped below $30 for the first time in five years as the bank continues to struggle with mortgage-related losses, exposure to so-called structured investment vehicles and a sharp decline in financing for leveraged buyouts.

"Our near-term outlook for Citi remains cautious given strong concerns about ongoing write-downs in structured products, significantly higher credit costs [especially from the U.S. consumer], balance-sheet constraints [which may put the dividend at risk if write-downs accelerate] and revenue headwinds [aggravated by a slowing U.S. economy]," the analyst wrote in a note.

If the U.S. economy slips into recession, some of Citi's other consumer divisions, such as its credit-card business, could suffer further.

While Pandit is well equipped to tackle Citi's investment banking problems, he has less consumer banking experience, another analyst noted.

The "could be a disadvantage as banks stand at the doorstep of a credit cycle, and given that the Global Consumer businesses contribute 50% to 60% of Citi's consolidated net income," John McDonald, an analyst at Banc of America Securities, wrote in a note to clients.

Priorities

Some analysts and investors are concerned that Citi is running short on capital and might have to raise more money or cut its dividend. Some of those concerns were allayed in late November, when the Abu Dhabi Investment Authority invested $7.5 billion in Citigroup. See full story.

But there are still concerns that the bank may have grown too large and unwieldy. Pandit addressed this issue in a statement Tuesday.

During a conference call with analysts on Tuesday, Pandit said his top priority is to improve Citi's productivity by allocating capital to the best growth opportunities.

The new CEO said he will start "an objective and dispassionate" review of all the bank's businesses "individually and in aggregate," while focusing on developing and retaining talent.

The comments suggested that Citigroup might reorganize itself or sell some businesses, McDonald, at Banc of America Securities, said.

"We would not be surprised if following his review certain businesses were either sold or restructured," the analyst wrote. "A sale of businesses could also serve as a much needed source of capital."

Old Lane, Morgan Stanley

Pandit is currently the head of the institutional-clients group at Citigroup. He ran a hedge-fund firm, Old Lane Capital, for a few years until Citigroup acquired the business in April for about $600 million.

Before that, Pandit, a native of India, served as the president and chief operating officer of the institutional-securities and investment-banking group at Morgan StanleyMS, +0.94%
from 2000 to 2005. Pandit left Morgan Stanley in 2005 and formed Old Lane in 2006.

In October, Citigroup merged its investment-banking and alternative-investments businesses into the institutional-clients group, bringing Pandit another step up in Citigroup's hierarchy just months after joining the bank.

Also on that month, Citigroup said it anticipated that third-quarter profit would fall 60% from the prior year, after huge write-downs for unsold debt it issued to finance corporate takeovers, as well as for big losses on the value of securities backed by subprime mortgages. The financial-services giant blamed "dislocations in the mortgage-backed securities and credit markets, and deterioration in the consumer-credit environment."

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